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A Tax Break for the Self Employed

Under the general IRS rules & regulations Health Care insurance & healthcare costs are not able to be deducted on the Federal schedule C. However, there a number of statues that supersede the general rules.

When the spouse of a self employed person is also an employee of the sole proprietorship the sole proprietor can deduct all reasonable health care insurance & out of pocket medical expenses on the Federal Schedule C. Please see IRS Code Section 105.

This is a great benefit for the sole proprietor. Not only does it lower federal income taxes at a greater rate it also reduces the amount of social security & medicare taxes paid.

It is important that the spouse be a “bona fide” employee. The spouse can only be a part time worker. The spouse cannot be classified as the owner.

You should keep the necessary documentation to support your claim as an employed spouse. For example, you should keep a log of hours worked, duties, compensation and any other important information.

The spouse must be treated identical to the owner regarding the medical plan eligibility requirements or any deduction would be discriminatory and non-deductible.

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